Whole Foods’ Existential Threat?
Whole Foods’ Existential Threat? from Wolf Street
“Amazon’s plunge into the $800 billion US grocery industry posed an existential threat to rivals”: CNN, August 2018. So let’s see.
By John E. McNellis, Principal at McNellis Partners, for The Registry:
A couple questions remained in the wake of Whole Foods’ announcement last week that it was dropping prices on over five hundred items by twenty percent. Is this Amazon’s long-awaited spring offensive or is the grocer playing defense, treading water, simply trying to keep its market share? Stretched over a broader canvas: Is Amazon truly the existential threat to the grocery business the click-baiters would have you believe?
Before we get to existentialism, let’s consider a smaller question. Was it really a price reduction at all? Maybe not. The New York Times sent a couple reporters to shop their local Whole Foods for a basket of identical items before and after the ballyhooed price reduction. The total post price-cut savings was five cents on a fifty-five dollar purchase. The paper also used a Morgan Stanley study to report that Whole Foods prices are fifteen percent higher than those at a typical supermarket.
Even the kale and quinoa crowd can add, eventually. To keep paying a fifteen percent premium, they need to feel special about themselves and their supermarket. They need to know that their market is buying sustainably, doing business with the little guy, choosing only pesticide-free truck farm vegetables, wild salmon that have never seen a hatchery—let alone a fish farm—and so on.
That is not Whole Foods’ compass setting today. According to one grocery industry expert, Amazon is “in danger of breaking its shiny toy,” of destroying the Whole Foods brand, of dissolving its organic mystique. He pointed out that the company has cut ties with smaller, more esoteric suppliers in favor of focusing on bigger, national brands. In a word, this competitor says Whole Foods is becoming generic.